Aug 29, 2023
Imagine that you’re shopping for a home and your agent has shown you 50 houses over the course of 6 months. Home inventory in your area is tight and each time you find a promising house, you get outbid by another homebuyer.
This scenario is all too common – your agent has done a ton of work, yet they haven’t actually made any commission (yet)!
The short answer is yes. But the process and explanation is somewhat complicated.
Let’s review a few concepts that will reveal how the buyer’s agent gets paid.
First – you (the buyer) do not write a check to your agent at closing. Nor do you wire them money. In fact, the buyer agent commission isn’t even captured in your “cash to close” amount that’s payable at closing.
But, if the buyer truly pays the agent commission, how exactly does it get paid?
This is the important question to ask: “Who pays for the buyer agent commission and how does it work”?
Step 1: You “hire” a buyer’s agent with no up-front cost. This is often a friend, referral or someone you found online.
Step 2: The buyer agent helps you find homes in your price point and arranges home tours on your behalf.
Step 3: The seller bakes in the cost of all commissions when deciding the listing price. In other words, the seller calculates their final net proceeds after all closing costs.
Step 4: Listing agent and home seller agree upon a predefined “cooperating” buyer agent commission amount that will be paid to the buyer agent at closing.
If you’re a homebuyer, your Realtor and the seller’s Realtor split the total commission fee – typically 5-6% of the purchase price of the home. In other words, your agent usually receives around 3% and the listing agent usually receives around 3% as well.
These fees are technically paid by the seller at the time of closing, but these costs are factored into how much sellers list their home for.
Since these fees get baked into a home’s listing price and you’re the only one who pays money at closing, the buyer’s agent commission gets passed onto you when you buy a home. In other words, it comes from your mortgage/loan on the home.
Said another way, you could theoretically buy a house for 6% less than the market price if no Realtors were involved in the transaction. Or, you could save 3% if you did not hire a buyer agent. In fact, this happens all the time with off-market deals, investor-owned properties and “for sale by owner” transactions.
In today’s market, it’s most convenient to hire a Realtor – especially if you’re a first-time home buyer. However, it’s important to understand that agent commissions are negotiable when buying or selling a home. As a buyer, you can negotiate a commission refund and as a seller, you can negotiate a reduced listing fee.